121 entries from October 2007

October 31, 2007

Most employees have all their retirement eggs in one basket --their employer's retirement plan. The plans usually offer less than two dozen fund choices to cover all your hopes of maintaining your lifestyle, independence, and dignity in your later years. As discussed in the previous article, the more baskets (and eggs) you have, the better. If most of your retirement assets are with your employer, here's how to make the most of what you've got.

First, there are some mistakes to avoid. Probably the most common mistake made by employees is to allocate an equal amount of money to each of the fund choices. Studies have shown that given ten choices, employees tend to put 10% in each choice. Given five choices they put 20% in each choice. If four of the choices represent one type of asset and the fifth is unique the asset allocation is split 80/20. If the funds happen to be the other way round then the asset allocation is 20/80.

The equal proportions methodology builds very poor portfolios. You can't afford to make these types of mistakes with your future livelihood. The only thing worse than the equal proportions strategy is allocating all of your money to just one fund. You need an investment philosophy that integrates all of your asset holdings. Only then can you evaluate which of your company's fund options are right and determine what percentage to allocate to each.

Many employer sponsored retirement plans are just mediocre. Neither the fund company nor plan provider has much incentive to fill your selections with stellar choices. Plan sponsors have a fiduciary responsibility, but few take that responsibility seriously. Procedures may or may not be in place even to meet minimum guidelines. Still, you should be able to find a few funds worth selecting in order to gain your employer's match.

Your own company or plan provider usually isn't the best place to turn for advice. After all, they are the ones that picked the options in the first place. You should get the outside opinion of a professional financial planner on where to invest.

Another common mistake is to invest in whatever funds have done the best over the past 1, 3, or 5-year period. None of these measures is long enough to produce a balanced asset allocation. Every financial disclaimer states that "past performance is no indication of future returns," and yet, past performance remains the primary selection criteria for many investors. Too many employees pick the asset category that has done the best over the past three years. However, these higher-than-average returns often represent a peak. Going forward, they are the fund choices most likely to under-perform for the next three years.

While three year average returns is a poor way to select a fund, thirty year average returns is a good way to select an asset category for including in your asset allocation. If small cap value is a good asset category to include for the long term, see if your plan includes any small value funds. Then judge them against other outside funds within their asset class and not against other funds within your plan.

You should be looking for funds which are the best funds within their asset class regardless of how well the asset class has done over the short term of just the last few years. Funds that are the best in their category can often be found through index funds that have very low expense ratios.

Remember also that you are looking for a team of funds and not just a few hot shots. Your retirement portfolio consists of more than just your employer's plan. Even if your employer's plan only has a couple of good choices, you can use your other investments to create a balanced asset allocation. While the choices in your employer's plan may be limited, investments in your IRA or taxable account will have an unlimited number of choices from which to craft a balanced allocation.

It is important to start with an over all asset allocation plan and then see what asset classes your employer's plan offers that would integrate well with your investment philosophy. Since your employer's plan usually has the most limited number of choices, pick the best it has to offer that fits with in your over all plan.

Because regular use of the dryer is hard on fabric and uses a lot of electricity, I hang my clothes to dry in the laundry room. I have a dehumidifier there that keeps the basement from being damp and helps speed the drying of my clothes. The dehumidifier has the Energy Star logo, which means it is a model that uses less energy, thereby saving money. I use the water that the dehumidifier collects to refill the toilet tank or to water the outdoor plants on dry summer days.

My take on this:

1. Wow. This sounds like a lot of work.

2. How much does it really save? Yeah, you save money from the dryer not running but spend money on the dehumidifier. Not to mention the cost of your time. This is quite a process.

3. Good point on dryer's being hard on clothes. A bit of savings can be racked up there due to clothes lasting longer.

4. We used to hang our clothes outside when I was a kid. But haven't we found that doing this can aggravate allergies?

I've written several "best advice" pieces (see my best advice category for details) and love to hear short takes on what financial "experts" view to be their best piece of financial advice. Over the next several days, I'll share some of these from a Bankrate article on best personal finance advice and give you my comments on them. Today, we'll hear from Wayne Dyer, author of "It's Not What You've Got: Lessons for Kids on Money and Abundance":

The lesson "for me was, first, pay yourself," Dyer says.

"When you get your paycheck, take a percentage -- between 10 percent and 30 percent -- and put that away," Dyer says. "You'll be rich enough to be financially independent within a short period of time."

Think this guy has a way of over-stating things? ;-)

I agree that you should save a good amount of your pay. I've done this for years. I fully fund my 401k and have savings to boot on top of that.

But to say "You'll be rich enough to be financially independent within a short period of time" is an over-statement for sure. I've been saving a ton for a couple decades now, and while I'm doing well, I'm not financially independent by any means.

Michele Hernandez boasts that 95% of her teenage clients are accepted by their first-choice school. Her price: As much as $40,000 a student.

Hernandez says she earned almost $1 million last year.

Hernandez received a $450,000 advance from Warner Books.

Today, Hernandez has 80 clients.

Hernandez and Mimi Doe announced their first application boot camp. It was a $7,800, four-day summer program for students about to enter their senior year. Doe and Hernandez promised they would leave with completed applications and a strategy for where to seek admission. All 15 spaces for the New York seminar, held at the luxury Kitano hotel, were snapped up in weeks. In the summers of 2006 and 2007, Hernandez and Doe raised the price, first to $8,200 and then to $9,500, and still filled one session in Manhattan and another at the Shutters Hotel in Santa Monica. Next year they may hire others to help edit the essays so they can open the program to more students. They will charge $12,500.

Hernandez and Doe have created a virtual boot camp ($2,999). They have put together a 60-page book, Set Yourself Apart: The Ultimate Guide to Top High School Summer Programs ($189). They have a partnership with two SAT tutors who on Hernandez' Web site offer five hours of help over the phone ($1,600). And Hernandez and Doe are hoping to link up with a travel consultant, someone who could plan family trips to visit colleges.

Holy cow -- this thing's a gold mine!!!

Ok, so she's clearly at the top of the heap here so in some respect comparing her to any of us and saying we can earn a bundle is like saying I should earn boatloads of money since I'm in business and many business executives earn millions. Plus, she has experience, connections, name-recognition, and a head start on the rest of us. So we shouldn't expect to make what she does.

That said, I think this field is just forming and there's plenty of room for a variety of advisors with different backgrounds filling different niches. For example, guidance counselors, business people, teachers/professors, and so on could all be good college advisors and probably earn a decent side income. In addition, people could specialize -- maybe having/developing an expertise in something like SEC schools, universities on the West Coast, engineering schools, or Christian colleges. These people wouldn't need to charge $40,000 to develop a nice, side business/income. Even if you "only" earn $100 an hour, you'd still be doing well. Even half that would be good. And it seems like there are more and more people willing to pay to get Junior into the right college.

One of the houses we looked at this summer had a geothermal heat pump, something the realtor saw as a big selling point. I didn't know anything about them so it didn't really mean anything to me at the time. But since then, I've studied a bit about them and I recently found an article on them in This Old House magazine. It seems like they can both save money and help the environment, so I thought I'd post on what I know about them.

A geothermal heat pump system is a heating and/or an air conditioning system that uses the Earth's ability to store heat in the ground and water thermal masses. This system will take advantage of a land mass as a heat exchanger to either heat or cool a building structure. These systems operate on a very simple premise; the ground, below the frost line, stays at approximately 50 °F (10 °C) year round and a water-source heat pump uses that available heat in the winter and puts heat back into the ground in the summer. A geothermal system differs from a conventional furnace or boiler by its ability to transfer heat versus the standard method of producing the heat.

So basically, it's easier for a geothermal heat pump to heat in the winter and cool in the summer because it's using 50-degree water as a base. Compare this to trying to get heat from 10-degree air or cooling from 90-degree air (something conventional heating/cooling systems have to battle with), and you can see why the geothermal heat pump has such an advantage.

In addition, a geothermal heat pump is much quieter (the equipment is usually in the basement, like other systems, but the rest is buried underground -- nothing to make outside noise) as well as better for the environment (This Old House says it reduces greenhouse gas emissions by the equivalent of planting 750 trees or taking two cars off the road.) But let's get down to brass tacks. How does it stack up financially? More from Wikipedia:

The initial cost of installing a Geothermal Heat Pump system can be two to three times that of a conventional heating system in most residential applications, new construction or existing. In retrofits, the cost of installation is effected by the square footage of living area, the home's age, insulation characteristics the geology of the area, and location of the home/property. For new construction, proper duct system design and mechanical air exchange should be considered in initial system cost. These systems can save the average family from 400-1400$/year, reducing the average heating/cooling costs by 35-70% per household. The cost of installation may be reduced by many governmental programs which all the home owners use to reduce their taxes at the end of the year.

This Old House uses the following numbers:

Installation cost: $15,000-$20,000

Savings to heating/cooling bills: 30 to 70%

Break-even point: Seven to eight years (according to an Air Force Institute of Technology study)

Of course, the actual payback depends on your power usage as well as your local utility rates. Still, even a 10 to 12 year payback would seem pretty good to me.

My main thought was "what happens if this unit breaks down somehow -- much of it is underground, wouldn't it be costly to repair?" I'm guessing the answer is "yes" to this, but This Old House says the units rarely need repairs -- and the parts that do are the ones inside the house, not the ones buried in the yard.

Supposedly, only 47,000 geothermal heat pumps were installed last year -- a small fraction of all heating/cooling systems. Anyone out there have one or have experience with one? I'd sure love to hear your thoughts.

If you want to read more about geothermal heat pumps, check out the Wikipedia article above (with cool pictures) as well as this one.

I've written several "best advice" pieces (see my best advice category for details) and love to hear short takes on what financial "experts" view to be their best piece of financial advice. Over the next several days, I'll share some of these from a Bankrate article on best personal finance advice and give you my comments on them. Today, we'll hear from Gary Belsky, co-author of "Why Smart People Make Big Money Mistakes and How to Correct Them":

Be afraid when people are greedy, and greedy when people are afraid. It's basically, "Buy low and sell high." In general, I've been doing better than market averages when I've been handling my investments. I've basically done that by being conservative when the market is frothing and aggressive when the market is down.

I agree with him 100%. Moving against the flow is one of the great ways to make money in America.

How do I put this into practice? A couple ways I can think of right away:

2. While many are moving away from housing/struggling with it, we're looking at the downturn as an opportunity to buy. Of course, having no debt and a lot saved up for a great downpayment or outright property purchase puts us in a good position to take advantage of this opportunity.

October 29, 2007

What do you think about the Costco car buying program? Can it compete with your method?

It's an interesting question. I'm not sure about the answer.

My method got me deals that were very, very close to the true dealer cost (including kickbacks from the manufacturer), so it's hard to believe I could have done better. Then again, every time I walk by the car-buying section of Costco, I wonder how good of a deal they could get me. FYI, I wasn't a Costco member when I bought my last car, so I didn't even know about it then.

Just wanted to let you all know that I'm back to blogging after having visited my sick Grandmother last week. She's doing much better (though not out of the woods yet). Thank you all for your thoughts and prayers.

I've noted that the American Express Blue Cash card is the top credit card for big spenders, but it seems that American Express as a company has something to brag about as well -- it was named the best company in J.D. Power's first-ever credit card satisfaction study. I was emailed the results by a reader. Here are the highlights:

American Express ranks highest in customer satisfaction among credit card issuers, according to a new nationwide study by J.D. Power and Associates. The study, which was released earlier today, ranked American Express highest in overall satisfaction among the 10 largest card issuers in the U.S.

The J.D. Power study indicates that credit card satisfaction is shaped by many factors (in order of importance):

A card’s Benefits and Features (34%)

Rewards (25%)

Billing and Payment Process (21%)

Fees and Rates (16%)

Problem Resolution (4%)

American Express ranked highest in Benefits and Features with a factor score of 773, soaring 103 index points above the industry average.

American Express is a leader in the rewards marketplace because it strives to offer the richest rewards, providing depth and breadth of choice, flexibility and innovation. Rewards programs are the primary reason customers select American Express credit cards.

For American Express, the benefits and features of the Cards it provides comes down to...services like travel-related insurance, purchase protection, and fraud detection.

My thoughts on this:

1. Congrats, Amex. I've used the American Express Blue Cash card for several years now and love it. And it's about to get even better as I combine it with the Chase Freedom Cash Visa Card to earn up to 2.6% cash back.

2. Personally, I don't really care about a card's benefits and features. I'd prefer them to not offer these options and increase their rewards programs instead.

4. J.D. Power doesn't hand these awards out just for the asking, so I think this is fairly meaningful. Also, they have a reputation for conducting good studies where the accuracy of the data can be counted on, so I see this as very solid information.

A family of four in the Bay Area with two working adults must earn $77,069, equaling an hourly wage of $18.53, just to pay for basic necessities, a study released today calculates. If only one adult works, that figure falls to $53,075, largely because the family doesn't have to pay for child care, according to the report by the California Budget Project, a liberal Sacramento research group. But that one wage-earner must make $25.52 an hour.

And a single parent with two children needs to take in $65,864 annually, at an hourly wage of $31.67, to cover expenses, the Budget Project figures.

Statewide, the two-working-parent family needs an annual income of $72,343 to cover necessities; the family with one working adult must earn $50,383.

The Bay Area is by many measures the richest region in the United States. Median household income - the level at which half of households are above and half below - was $62,024 in 2000, the highest in the nation, according to the Census Bureau. But that means that almost half of all households in the region don't take in what the Budget Project reckons is needed to make ends meet. Those families often must do without some of the things viewed as essential to middle-class life, such as health insurance or a separate bedroom for the kids.

The federal poverty threshold, used by the government to calculate how many of the nation's people are poor, is an income of $20,650 for a family of four. That means basic necessities in the Bay Area cost roughly 2.5 times the federal poverty level.

My thoughts:

1. Yep. That's what I said. Some cities are REALLY expensive. You can save yourself a bundle simply by moving. Even if your income takes a hit, you might be better off because it's likely your income won't go down as much as your expenses.

2. I don't know about you, but where I'm from, someone making $77k a year is doing ok. They're not wealthy, but they're not just barely making it either.

3. "Basic necessities in the Bay Area cost roughly 2.5 times the federal poverty level." Do I need to say more? For those of you who say "yeah, but there's so much to do in the city," I gotta ask, "Is there really THAT much extra to do?"

4. California as a whole isn't much better.

5. I know I'm going to get a bunch of "it's my money and I want to live here" sort of comments and those are fine. If you can afford the higher cost-of-living and want to live in an expensive city, then go ahead. But if you're barely making ends meet, paying for only the necessities, and scraping by on a mere $77k a year, you might want to consider moving to a less expensive city.

October 28, 2007

Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. Matthew 19:24

One of the commenters came up with this explanation of the passage:

I have to address the camel going through the eye of a needle. This is one of the most misinterpreted verses because no one researches the context of the day. The eye of the needle was a gate in the wall of a city. It was made with the intention of only letting humans and some small livestock through, but mostly humans. It would be very difficult to get any large livestock (like a camel) through this gate. It would not be impossible.

I have heard this teaching too, though I don't agree with it. More on that later, though one commenter says the following:

As for the "needle's eye gate", there is no such place in Jerusalem. The idea of Jesus' saying referring to a gate in Jerusalem seems to have arisen between the 9th and 11th centuries.

Another commenter went on to explain what he thought the verse meant:

Jesus was speaking specifically to that young rich man's situation. The amount of $ he had wasn't a problem (we assume it was not ill gotten), his attitude about it was. A man who only has $10 to his name is just as likely to not enter heaven if his attitude about it is wrong. Jesus had interactions with several other wealthy men (Nicodemus comes to mind) in the Gospels but he does not explicitly tell them they must give up their wealth so we can not assume that Jesus was speaking universally about any and all forms of wealth.

Another agreed:

Here is my interpretation of this passage. The amount of money that we have is irrelevant. We are all meant to live abundantly. The problem arises when your love for money supersedes your love for God. Jesus is pointing out that it is easy for a person with lots of money to become attached to the money and therefore makes it hard to give that up for God. i.e. Love for God above all else. Of course this can happen for anyone with any amount of money.

Here's my take on the issue:

1. To look at what the verse means, you need to look at the context of it. Here's the complete story from Matthew 19:16-26:

Now a man came up to Jesus and asked, "Teacher, what good thing must I do to get eternal life?"

"Why do you ask me about what is good?" Jesus replied. "There is only One who is good. If you want to enter life, obey the commandments."

"Which ones?" the man inquired.

Jesus replied, " 'Do not murder, do not commit adultery, do not steal, do not give false testimony, honor your father and mother,' and 'love your neighbor as yourself.' "

"All these I have kept," the young man said. "What do I still lack?"

Jesus answered, "If you want to be perfect, go, sell your possessions and give to the poor, and you will have treasure in heaven. Then come, follow me."

When the young man heard this, he went away sad, because he had great wealth.

Then Jesus said to his disciples, "I tell you the truth, it is hard for a rich man to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God."

When the disciples heard this, they were greatly astonished and asked, "Who then can be saved?"

Jesus looked at them and said, "With man this is impossible, but with God all things are possible."

2. It's notable that the same story is told in Mark 10 and Luke 18. Mark 10 adds (after the young man says he's kept all the commandments) in verse 21:

Jesus looked at him and loved him. "One thing you lack," he said. "Go, sell everything you have and give to the poor, and you will have treasure in heaven. Then come, follow me."

And the Luke version ends a bit differently in verses 26-27:

Those who heard this asked, "Who then can be saved?"

Jesus replied, "What is impossible with men is possible with God."

3. I think Jesus was talking about a real camel and a real needle -- not some sort of gate. He's basically setting up a situation that is impossible in human terms.

4. I agree with the commenter above who thinks this is about the person's attitude. It's hard for a rich person to enter the kingdom of heaven because he usually has other things on his mind, namely his wealth (protecting it, growing it, enjoying it), and puts it before everything else. As such, serving God and living according to Jesus's teachings is far, far removed from his thoughts and actions.

5. That said, it's not impossible for a rich man to enter the kingdom of heaven because with God, all things are possible (the final point of the passage.) If Jesus was simply talking about a gate and something that wasn't really that hard, why would it have seemed impossible in the first place? And why would we need God to make it possible if people really could? No, I believe Jesus is saying that by man's ability alone, it's impossible to enter the kingdom of heaven, but with God's grace, it is possible. In this context, he's talking about a particular issue associated with wealth, but I think the principle extends universally to all people -- no one can earn his way to heaven. Consider as support Ephesians 2:8-9:

For it is by grace you have been saved, through faith—and this not from yourselves, it is the gift of God— not by works, so that no one can boast.

6. The bottomline here is that wealth doesn't disqualify you from heaven, but a bad/incorrect attitude can (whether you're wealthy or not.)

October 27, 2007

Here's a piece from Money magazine's series from The Mole, a financial planner who gives the inside scoop on what planners usually recommend, and what he sees as the right answer instead. In the latest edition, he advises people to pay as much as they can on their homes -- having as little debt as possible -- and implies that we should pay off our homes as soon as we possibly can. His main thoughts:

Financial planners also sometimes try to argue in favor of debt, the argument being that the less money you put down, the more investment gains will be magnified.

If some financial advisor gives you this line, say "no thanks" in no uncertain terms. These other investments will bring other risk, a ton more in fact. The only thing we know for sure is that the advisor and the mortgage broker will make more money.

My advice is to be your own banker when possible and minimize debt.

His argument above is one that many people don't really consider, myself included. We've talked a lot about whether or not people should pay off their homes early or instead just pay the monthly mortgage and invest any extra. During these discussions, we've noted that paying off the mortgage is a guaranteed return, but we haven't addressed the issue that it's much less risky than investing in stocks. Yes, there's a big expected return difference, but there's also a big risk difference.

BTW, he also notes that while paying mortgage interest will get you a tax deduction (making the cost of a mortgage lower), if you invest in stocks in a taxable fund instead of paying off your mortgage, you'll pay taxes on your gains, thus lowering the amount they generate for you.

Here's round 372 (or at least it feels that way) of the "does money buy happiness?" debate. AI don't think I've ever seen anything reliable that says the more money you have, the happier you are. But I have seen studies saying that the more money you have up to a point, the happier you are. After that, more money doesn't bring more happiness. This article from Newsweek details this money/happiness relationship:

Wealth increases human happiness when it lifts people out of abject poverty and into the middle class but that it does little to increase happiness thereafter.

That's at the beginning of the piece. Throughout the rest of the article, Newsweek argues that there is no relationship between money and happiness. I'll let you read through their various arguments yourself, but the title of the piece is "Why Money Doesn’t Buy Happiness," so you can guess where they end up.

I'm with the former idea myself. I think money does make people happier up to a point and after that, it doesn't do much to make them any happier. What's your take on the issue?

I have two copies left of Quicken Premier 2008 that I'll be giving away over the next couple weeks. Here's how you can have a chance to win the giveaway this week:

1. Leave a comment below -- any comment.

2. Sometime on Monday, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information. I'll try and post a new piece to remind you to check.

4. I'll send the winner a link to download a free copy of Quicken Premier 2008.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send the prizes via email and since they come from Quicken, they should be fine, but since I can't control the links I won't be held accountable if there's a mess up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

I have been preparing to move cross-country for family reasons and have been doing extensive research on the various ways to do this cheaply and quickly on my own as well. I have already helped my girlfriend move cross-country and have assisted several others move regionally, cross-country, and internationally through self-moves and with government paid moves. Here is a few I would like to add.

If renting a Uhaul or penske truck/trailer/van for a long distance 1 way move the price will vary wildly by where you are going to move to. If you are moving to a small area then the fees can be 2-3 times as much. In my case it was going to be $1500 to rent a trailer but if I returned it in a neighboring larger city it was only $600!

When negotiating salary or benefits with a company in the new area that does not offer relocation ask if they will do a partial relocation package. The companies are normally figuring on a complete relocation package for a 3-4 bedroom house as well as temporary housing while house hunting in the local area. For a cross-country move with complete door-to-door services including boxing, packing, shipping, and unloading it can easily range from $20-50k+ from a reputable mover! For most mid-career positions this is an expense that I understand most companies do not want to pay for but most will be willing to pay a smaller amount. Several companies which did not offer relocation packages were easily convinced to offer a smaller amount ($5k) as a hiring bonus. This amount would have easily covered my personal moving costs which included Uhaul rental, mileage rate, per diem (lodging and food), and packing supplies. Many companies will also allow you to inprocess at the company before the move and this allows time to house hunt at the same time.

Paying for professional movers for a long distance move is never cheaper! It is much more convenient but never cheaper. I obtained numerous quotes and it was literally cheaper or a similar cost for me to buy a full size truck, enclosed trailer, pay for gas/time/food/hotel, ship my car, and move myself! To completely move my girlfriend's sparsely furnished small 2 bedroom apartment from DC to the Seattle area was between $25-30k!

While definitely not cheaper it is often more "frugal/economical" to buy generic rubbermaid type containers if decent boxes cannot be found for free or nearly free. I did not believe this until I put it into action when helping my girlfriend move cross-country. It was a short notice move and we could not find boxes quickly of a quality that we would trust with her things so we bought numerous plastic containers on sale for a price that was 2-3x the cost of cardboard. They were used to pack, move, and then after the move the boxes were loaned out and given to others moving or in need. The remainder are used at her place for storage, organization, and several other uses. There was a higher initial cost but the multiple uses of them over time drove down their per-use cost

Hire out the help loading and unloading when doing long distance self-moves through moving services such as http://www.twomenandatruck.com/ They will pack and load your things into a rental truck/trailer faster and more efficiently than most people can. There is a minimum amount of time or money they will come out for but the time savings was well worth the reasonable cost. A discount can often be negotiated if it is an off-time or between large jobs.

Here's an interesting question from MSNBC -- how do you define middle class? The article notes that there's no official government definition of "middle class" and, as such, gives a wide range of what could be called middle class as follows:

Based on 2005 Census Bureau reports, some 40 percent of the nearly 115 million households in the U.S. earned less than $36,000 a year. That represented just 12 percent of all income. The 40 percent on the next rung up the economic ladder took in between $36,000 and $91,705 — or about 37.6 percent of all income. The top 20 percent, who made $91,705 or more, collected half of all income.

But those numbers don’t adequately reflect the state of mind of those who consider themselves middle class. Surveys have shown that, while people consider $40,000 a year to be the low end of what it takes to buy a middle-class life, some people who make as much as $200,000 a year still consider themselves middle class, the researchers said.

We all use the term "middle class," but I've never really given any thought to what it meant other than "average." But how big is that average range -- that's the key question? And is income even the right measurement? Wouldn't we be better off using net worth?

October 25, 2007

Here's a piece courtesy of ARA Content on how to save money. There's a Shell commercial mid-way in the piece, but just ignore that. The tip is good (make money off a credit card) but I prefer another method.

Bills and expenses are a typical part of life, but some simple changes can go a long way toward saving money. Finding clever ways to stretch the family budget allows for fun activities without breaking the bank.

After I spent ten years as a senior buyer, I had had a difficult decision to make after my son was born. I realized that I wanted to be a stay-at-home mom, but my salary contributed to 50 percent of the family income. That is when I learned first-hand how to manage my family’s budget. Since then I’ve written three books and started a Web site (www.miserlymoms.com) teaching others how to make frugality a lifestyle for the entire family. When I talk to parents about their spending habits, the biggest mistake I hear is how they shop. Whether it's for groceries or vacation, changing how we shop can help our budget.

Here are some tips that over time will help you and your family save money without sacrificing the things that are most important to you.

Family Time

Some of the most enjoyable experiences my family’s had are the ones that cost little to nothing. We looked for inexpensive and interesting activities for the whole family, such as:

Take a hike through a park and watch the sunset. Take a loaf of bread and feed the ducks or pick wildflowers to bring home. Press the flowers and use in bookmarks or gift cards.

Look for free tours at interesting places such as factories and museums. You’ll have fun while you learn. Find children's museums or centers with interactive displays. Many are educational (but the kids still have fun).

Have a contest for the kids – let them be creative. One of my favorites I did with my kids was an egg-drop contest. Kids have to build something that kept a raw egg from breaking when dropped off the playground.

Family Vacation

Traveling is a great way to spend time with the family and create memories that will last a lifetime, but it doesn't have to be expensive.

Find hotels with free airport pick up. This can save you $100 per person. Utilize any complimentary breakfasts or happy hours with hors d’oeuvres.

When we went to Disneyland, we called the local hotel and asked for local attraction deals. We asked if the local grocery store chains were offering any 2-for-1 coupons for Disneyland. We were able to get some and make our trip even cheaper.

Instead of emptying your wallet to fill your tank, use a rebate credit card to earn rewards or save money. For example, with the Shell Platinum MasterCard from Citi Cards you earn 5 percent rebates on all Shell gasoline purchases and 1 percent rebates on all other purchases. At today’s average price that is a rebate of 14 cents a gallon. To calculate a trip’s total savings, go to www.877MYSHELL.com to see how much you can save.

Family Meals

Often we are so busy we end up eating out or buying convenience foods which can be costly and unhealthy. We were able to cut our grocery bill in half – that's several hundreds of dollars – by just changing how we shopped and cooked. Here are some simple changes that can save you money:

Limit your use of coupons. Coupons are for name brand items which cost more than lesser known brands, and coupons are for convenience foods. Use a coupon if the item is also on sale or you really were planning to buy that brand anyway.

Plan your weekly menu around the sale items on the grocery fliers. This one step can save 35 percent off grocery bills.

Cook several meals at once and freeze them. It will reduce the chances of eating out when you are busy, and will save preparation time and money when you buy groceries in bulk.

These are simple solutions to enjoy huge savings. As you try out these tips, you’ll find that you can still have a blast as a family while staying on a budget.

Every time you apply for credit, the application shows up on your credit report as a credit inquiry. These inquiries stay on your credit report for two years, but only factor into your credit score for one year. Inquiries not initiated by you, like account reviews by existing accounts, promotional inquiries and you requesting your credit report for review, don't factor into your credit score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.

I was having lunch the other day with a mortgage broker friend of mine (he's new to the industry, only a few weeks, so rest assured that he didn't write and sub-prime deals over the past few years.) In addition to discussing the state of the mortgage/housing industry and my house hunting progress, he gave me some advice on how to shop for a mortgage. He said that a few inquiries on your credit reports in a short amount of time (like a month) was ok as lenders saw that as a savvy consumer looking to get a good mortgage rate by shopping with a few companies. But if you extend that out for a few months, it appears to lenders that you're requesting credit from one place, being rejected, going to another place, being rejected, and so on. As you might imagine, they don't like this.

I will receive (with my first charge) $100 for using my new Chase Freedom Cash Visa Card. I missed out on the $250 rebate I've heard people talk about and now it appears that $50 is what they're giving.

I have a few things brewing still, but at $2,000, I have a long way to go to reach $10k. Now if I counted the items listed above, I'd be way, way, way over $10k. ;-)

October 24, 2007

It’s that time. You’ve worked hard, proven yourself and in your mind, you deserve a pay increase. So what now?

“Ask anyone and they’ll tell you they are worth more than what they earn,” says Dr. Andy Ghillyer, vice president of Academic Affairs for Argosy University’s Tampa Campus. “Asking for a raise should be a four step process. Approach it by defining what you want to ask for and then measuring where you are at compared to the industry and/or your profession. The next step is to review your past salary increases to set a realistic expectation. Finally, implement your plan and make plans to follow-up.”

“The first thing that employees need to do is set an appointment with their supervisor to meet somewhere without interruptions,” says Marc Scoleri, director of Career Services at The Art Institute of New York City. Scoleri notes that often times, employees get so worked up about actually asking for a raise that they delay actually setting the meeting. “Get on the calendar early and be prepared for a potential cancellation or move in date/time,” says Scoleri.

Before going in for the “big meeting,” research the industry average of your salary for your position in your location. There are several resources to do this on the Internet such as www.salary.com. For example, the cost of living in New York City will be higher than in Tampa, Fla. The average salary for the same position should be higher in NYC. “Bringing the average salary information from your research to negotiate can be a helpful visual if you are making below the average amount identified by the research, so it is important to research before negotiating,” says Scoleri.

“Explain that you are very happy with your current role and briefly mention your achievements and ask if he/she is open to considering an increase in your compensation,” says Scoleri. If the answer is yes, provide your research. It is always ideal to have a list of accomplishments you recently achieved over and above your normal job duties.

One example includes implementing a new initiative that has a measurable impact for improving customer service, safety, net income or efficiency. Come in prepared to demonstrate that your contribution has gone above and beyond what was written on the job description back when you started. Let your boss know you do not expect an answer today, which will help because most likely he/she will not be able to immediately give you that additional 5 percent or bonus on the spot.

Always shoot a little higher than needed and be willing to take other compensation such as vacation days, incentives or one-time bonus for superior performance. Scoleri says, “If your supervisor says no, ask what it would take for future consideration, listen and take appropriate actions to prove you are an asset.”

“One question that many people have is when is a good time to ask for a raise,” says Dr. Ghillyer. “Know your company’s budget cycle. Don’t ask in the middle of the budget year. Chances are slim. You have to time your move.”

Another good time to ask is when you have an offer letter from another employer to use as leverage, but don’t use the ‘other offer’ card unless you are given no other option -- you may win this round, but you don’t want your boss holding a grudge for being ‘blackmailed’ into the raise. Negotiate before you are hired into a new position for additional vacation days or lump sum bonuses if the company states they have a maximum percentage for raises.

The last thing to remember is that there is no need to be nervous. Go in confident, but don’t go in too overconfident that you set your self up for a let down. Make your case and prove your worth by demonstrating your accomplishments and explaining why the company should reach a little deeper into their pockets for your performance. We all need a raise. Good luck.

One of the common concerns I hear from people approaching or in retirement is the fear of running out of money too soon. It's tough (okay, impossible) to know just how long a life expectancy you should plan for. When I run retirement projections for people, I'm now using age 97 as the default life expectancy. If I know that long lives run in a client's family, I may shift this even further out.

When you're planning for your retirement years, you'll want to err on the conservative side of life expectancy, meaning that you should plan as though you're going to live to a ripe old age. When you look at tables showing average life expectancies based on your current age, remember they are just averages.

Yep. I'd be really, really, really conservative on this one. It would be very bad to run out of money before you run out of life. In a bit, I'll detail how I'm handling this risk as well as the other one. My solution for each one goes hand-in-hand with the other.

As far as how to deal with longevity risk, the piece gives a suggestion:

There are protections you can put in place to guard against longevity risk. One is purchasing or electing an immediate annuity.

They then detail what sort of annuity, special circumstance you need to consider, what provisions you'll want as part of the annuity you buy, and so on.

The article then switches to spending risk:

People are living longer in general and spending more money in retirement than previous generations. In particular, people are spending more on gasoline, entertainment, travel, and health care. Most of my clients expect to spend about the same, or perhaps even more, in retirement than they do now. That's because they want to travel, play more golf, or spend more time on hobbies.

In particular, here's a big cost to watch out for:

No discussion of the spending risks in retirement would be complete without touching on the cost of long-term care. According to the MetLife 2006 Survey of Nursing Home and Home Health-Care Costs, the average rate for a private room in a nursing home is about $200 a day or about $75,000 a year.

So, how do we deal with these two risks? Here's what the article suggests:

Run your retirement projections out to a reasonable life expectancy. Plan for a longer-than-average life.

Add up what you're spending now if you are about to retire or if you are in retirement. Remember to include less frequent expenses like travel, cars, and real estate taxes. Plug those expense numbers into your retirement projection to see how long your assets last.

Try to generate enough income from fixed sources (like TIPS or an immediate annuity) to cover fixed costs.

Make sure your retirement budget has adequately prepared for health-care costs in retirement, which may include long-term care.

This is basically what I'm doing. I'm estimating that I'll live a long life and that my living costs will be higher than I expect. If I then save according to these goals, I should be fine. But, boy, that sure makes for a very big retirement number! Yikes!

I'll comment on these in a bit, but here's the main reason they list the six items above as not being worth the cost:

The bottom line here is that consumers should look beyond the popularity of some options and ask themselves how much use or value they will get. Looking at the option list with such clarity can shave thousands of dollars off the cost of your next new vehicle.

I agree with their conclusion. When I purchased my last cars (two bought within six months), I listed the exact options I wanted and the ones I didn't want. Some of the ones I didn't want were standard on the model I wanted, but I still used that as a negotiating point with the sales person (I asked him to have them taken off the car -- something I knew he couldn't/wouldn't do -- just as another point within the negotiation process, something I could "give" him when I said it would be ok that they stayed on the car, but I wasn't paying above cost for them.)

Now that I've said I agree with them, I'm not 100% with Bankrate on their list. Here are my thoughts on their six items:

1. Agree. Buy good tires, keep them rotated and aired up properly and replace them when the tread is low. Why pay more for something you probably won't need and will give you a rougher ride while you use them?

2. Agree. Anyone ever heard of maps? Mapquest?

3. Agree. I listen to podcasts in my car anyway, and I don't need the latest sound system to do that. As they say, it's often a better choice to buy a system and have it installed in the car. (I did this a couple cars ago and I got something amazingly better than the manufacturer offered for half the price.)

4. This one is where I disagree. Now he does say that these are ok if you live in a cold or warm climate, so maybe I have an exception. All I know is that we use the heated seats quite often here in Michigan, particularly from November through March. But even on a summer day, the heat can feel good on your back after a hard day of lawn care, bike riding, etc.

5. I'm not 100% sure what they're talking about here. Do the mean the key fobs that you lock and unlock the doors with? Don't most/all cars have those standard these days?

Not only that, choosing a credit card that best suits your borrowing (or charging) habits can help you maximize the rewards you earn from credit card. But more on that later, I'm getting ahead of myself.

The piece also says that a recent J.D. Power study divides credit card users into two categories:

Transactors. These are people who usually pay off their balance each month. These folks tend to be more satisfied with their credit cards than are card holders who carry a balance. Because transactors don't have to worry about interest rates, they tend to look for cards that provide the best rewards, Taylor says. That makes sense: If you don't pay interest on your credit card, any rewards you receive are gravy.

Revolvers. These are folks who typically carry a balance on their credit cards. If you fall into this category, forget about rewards programs. You can't afford them. Your best bet is to pay off your balance each month. But if that's not possible, look for a card with a low interest rate and no annual fee.

Here's my take:

1. If you carry a balance, you need to get your finances in order and control your spending so that you get out of this cycle. It's a VERY BAD financial move to carry a credit card balance and no one reading this post should be doing it (or at least you should be working on a plan to get out of credit card debt.)

3. The key to maximizing your credit card rewards is to match where you spend, how much you spend, etc. with a reward you like (cash in my case.) Then look at all the alternative credit card offerings to see how you can get the most rewards based on your situation.

The article also gives some good advice for those who do carry a balance (while they are working to get themselves out of the debt cycle):

Card holders who carry a balance should also consider cards issued by small banks and credit unions, Daugherty says. These lenders don't have big advertising budgets, so you have to do some research to find them. But the payoff is often lower fees and interest rates, he says.

James Dillard, owner of Dillard's Septic Service in Annapolis, Md., runs a business that most others consider beneath them. Dillard knows that, but he takes it to the bank. He charges $200 to $300 a visit. At about five stops a day, his annual income passes six figures with months to spare.

Turns out there are a lot of people doing well and getting rich running businesses large and small that others consider mundane, boring, beneath them or downright disgusting.

Portable toilets are lucrative, so much so that they have a trade association called the Portable Sanitation Association International, which says the industry brings in $1.5 billion a year servicing 1.4 million portable restrooms worldwide with a fleet of 9,400 trucks.

Most anyone can clean, but more and more don't want to, and so the commercial and residential cleaning services industry grew to $49 billion in 2005 from $29 billion in 1998, says John LaRosa, research director of Marketdata.

Thomas Stanley, author of the best-seller The Millionaire Next Door, made a fortune himself by pointing out that the rich are often in mundane businesses and usually aren't the guys walking around in suits or at country clubs. They are scrap-metal dealers and dry cleaners, he says. They read trade journals such as Poultry Times and Water and Irrigation.

"You don't get rich doing what you love. You get rich doing something no one else wants to do."

This summer I went to a party held by a couple my wife knows. The party was at their house which, I'm guessing, was 7,000 square feet or so. Outside was a huge, in-ground pool with massive rocks built up around it (I KNOW they paid more for their landscaping than I did for my house.) They had an out-building where the husband had his office, a small house on-site where a relative lived, their top-of-the-line RV parked next to the out-building and so on. Yes, I realize that they may have borrowed a ton to finance all of this and they could be in lots of debt, but they had to have tremendous resources even to qualify to borrow enough to afford all that I saw.

I talked to the husband a bit while we were eating. His business? He had a sewage and water irrigation company. He noted that he had been in circumstances where the sewage was chest-high on him as he worked to repair a system. But he also noted that he was very well paid since no one else wanted to do what he did.

I've always heard that one way to get rich was to do something that others hated doing. They'll pay a ton for you to do it instead, and you'll get rich. Anyone out there ever put this into practice?

Taxpayers collected only about half the $8 billion the IRS expected to pay them in its phone tax refund, the most far-reaching refund in the agency's history.

Money magazine's report on the issue cites two main reasons for people not claiming their money:

Many taxpayers, following the advice of the IRS, didn't want to bother searching for old phone bills to calculate exactly how much they were owed, and took the standard $30 to $60 refund instead, refunds that were based on the number of exemptions claimed.

Despite what the report said were generally good efforts by the IRS to communicate the program to taxpayers, many remained uninformed. As of June 9, about 87.6 million, or 71.5 percent, of the 122.6 million individual income tax returns filed had made a phone tax refund claim.

I look at each of these explanations in different ways:

1. It's not worth it to get the exact amount. I took the standard refund. Was it worth me digging through years of phone records (like I had them anyway) to come up with a number that MAY have earned me a bit more? Probably not. We're looking at hours to get and look through the records, and since we've never talked a lot on the phone, we probably wouldn't be due much anyway.

2. Being uninformed -- consider this another tax on ignorance. BTW, if these people would have used a CPA to do their taxes, they probably wouldn't have missed this one.

October 22, 2007

I am single and 44 years old and have fully paid off my newly renovated house. (worth about $125k) What should I do now? I feel I paid off my house too quickly. My mutual funds have earned about 12% a year for the last 5 years. Is there a good way to pull money out of the house and invest it? Or are there other ideas on what I should do?

In Save Money by Not Making a Hotel Reservation, I discussed a Kiplinger's piece that said customers who arrive [at a hotel] without a reservation often pay less than those who book in advance. This said, I (along with many others) didn't really like the idea because we didn't like the potential of being stranded without a room for the night in case the hotel was booked (I also don't think I'd like to drive from place to place if they didn't offer me a low rate.) Anyway, one of the commenters had a solution on how to handle this issue:

You make a reservation and then walk into the hotel and before mentioning you have a reservation, simply find out how much it will be for your stay. I can't imagine if that told you it was cheaper, that they wouldn't give you a discount on the reservation price.

Putting all of your retirement eggs in one basket is easy to carry, but risky. Most workers are putting all their retirement assets in the basket of their employer's retirement plan. They are depending on one employer and two dozen eggs (funds) to hatch and maintain their lifestyle, independence and dignity in their later years. Don't trip.

Just one generation ago employers provided their employees with defined benefit plans for retirement. The employee could plan on a benefit that the employer had contractually promised. The employer was responsible to insure that a defined amount would be payable to each employee when they retired. Such security today is obsolete.

The new model moves the outcome responsibility from the employer to the employee through what are called defined contribution plans. The employer is helping with the input (the contribution), but no longer guaranteeing the output (the benefit).

An employee's retirement income is now contingent on four variables: how much the employee puts in, how much the employer matches, the performance of the underlying funds and of course, time.

In a typical defined contribution plan the employer will match dollar for dollar the first 3% of your salary, and fifty cents per dollar on the next 2% of your salary. That means if you contribute 5% of your salary, your employer will give you an additional 4% of your salary in retirement contributions.

Getting the maximum amount possible of this free money should be your first priority in saving for retirement. Even if your 401k or 403b defined contribution choices are not stellar, you still get an automatic 80% return on your money the very day you contribute. Strangely, many employees neglect to pick up this free money. The 80% automatic return is an offer you should not refuse.

After saving enough to get the full match from your employer, don't necessarily continue to use your employer's plan as your only retirement basket. After getting the full match, we recommend funding your Roth IRA, your spouse's Roth IRA and your taxable account. Only after adequately funding these individual account choices should you consider putting more money into your employer's plan than is necessary to get the full match.

Retirement plans through work are laden with fees and expenses that are not on individual investment accounts. The difference in fees is often 1% or more. The longer you leave your money in a defined contribution plan, the more the excessive fees will erode its value. There are plans so laden with fees that they are not even worth the match. Where the fee differential is 2%, after 30 years the fees will have eaten up the entire 80% match.

In other words, if you had the same amount of money in a traditional IRA account earning 2% more because of lower fees after 30 years you would have 81% more money in your account. For this reason alone, make sure that you don't leave money in an employer's retirement plan any longer than you have to. After terminating employment with one employer you should always roll that money into an individual IRA Rollover account where you can invest with lower fees and better choices.

It is a mistake to move money from a pervious employer's plan into your current employer's plan. This mistake, however, can often be undone. Money that has its source from another employer is usually allowed to be rolled out of an employer's plan and into an IRA Rollover account. If you are in this situation you should see if you can rescue some of your investments from the higher fees and limited choices of your current employer's plan.

There's another important tax reason not to put all of your retirement assets in your employer's plan. If you take a deduction while you are in a low tax bracket and in retirement when you are taking withdrawals you are in a higher tax bracket then your contributions work against you. You would have done better to have put your extra non-match retirement savings into a Roth or taxable account. Your tax rates are likely to be higher during your retirement. Currently, top marginal tax rates are only 35%. Before the Bush tax cuts the top marginal rate was 39.6%. Before the Regan tax cuts the top marginal rate was 70%. Before the Kennedy tax cuts the top marginal rate was 90%. Tax rates are at historic lows.

When you take the money out of an employer's plan or a traditional IRA account you will have to pay taxes at whatever tax rate is currently in effect. And after age 70 Â½ you will have to start taking required minimum distributions in order for the government to ensure that they will get their tax. Historically speaking, the odds are your withdrawals during your retirement will be charged at a higher income tax rate than the deduction you received when you put the money in.

If may be better for you to pay your current tax rate and get your money into a Roth IRA where it won't be taxed again or a taxable investment account where the growth is only taxed at capital gains rates.

If you are just starting out in your career you are probably in the lowest tax bracket you will ever be in. Therefore it is more important to carry your retirement savings in more than one basket. Fund your employer's plan with no more than is necessary to get the match and then fund your Roth IRA and build your taxable savings.

October 21, 2007

Last Sunday in It's Biblical to Do Your Work with Excellence I asked if anyone had any work-related verses to add to the two I listed. Several were submitted, and I thought it would be nice to list them for everyone to review. Here they are:

Let everyone be sure that he is doing his very best, for then he will have the personal satisfaction of work well done, and won't need to compare himself with someone else." Galatians 6:4, Living Bible

October 20, 2007

Here's a piece courtesy of ARA Content. It gets a little sales-oriented at the end, but I thought the information it provided overall (don't keep pulling equity out of your house) was worth the brief infomercial.

Most Americans dream of owning their homes free and clear someday, part of their retirement nest egg. Yet, for many, this dream gets farther and farther from reality as they break into their home equity piggy banks.

“I am somewhat surprised at the number of our loan applicants, even many of our excellent credit quality customers, who have taken equity out of their homes over the last few years via cash-out refinances or home equity loans,” says Gary Miller, a 25-year veteran of the credit industry and CEO and co-founder of FirstAgain LLC, a financial services company based in San Diego, Calif. “Now, with larger mortgages and often less equity, particularly with the recent home price depreciation hitting many areas of the country, these people face a longer and more difficult path to debt-free home ownership.”

Before you decide to borrow against your hard earned home equity, consider the following:

* Are you using your home equity for something that actually adds value (equity) to your home, such as a remodeling project or a swimming pool or for something important in your life such as a child’s education or unexpected medical bills? This can be a prudent way to finance such expenditures. Home equity loan rates are attractive and the interest is usually tax deductible if you itemize. However, if you are using your home equity to finance vacations or pay your bills, think again, as you may be overextending yourself.

* Are you using a fixed rate home equity loan with the shortest term you can easily handle? Adjustable rates may make sense for the financially well off (and financially sophisticated) but for most people, a fixed rate and a fixed monthly payment avoid future payment shock and is the better alternative. Paying off your loan sooner obviously builds your home equity more quickly. Think of it as forced savings.

* Cash out refinances can make sense if you are improving your overall mortgage terms and using the cash for an appropriate purpose. Again, consider shortening your loan term if possible.

* Are you thinking about a home equity line of credit (HELOC)? This product is marketed like a credit card with adjustable teaser rates, ease of use and other incentives, encouraging you to use your home equity for just about anything with long repayment periods. Be careful. Having a HELOC in place may be prudent for certain purposes (for example, a future emergency) if you can be disciplined about not normally using it and pay it down quickly if you do.

* If you have excellent credit, you may qualify for an attractively priced unsecured loan that doesn’t require pledging the equity in your home. This type of loan, such as FirstAgain’s AnythingLoan, offers highly competitive, fixed interest rates and an ease of use not available with mortgage products. Entirely online and paperless, you can apply in the morning and have $10,000 to $100,000 in your account by the afternoon. It takes just minutes versus the days required for a mortgage loan.

“Given the more difficult lending environment caused by the recent sub prime meltdown, home equity products have become both more expensive and more difficult to obtain as lenders tighten their credit criteria and loan to value guidelines,” says Miller. “Our product represents a great alternative for those with excellent credit who don’t have a home equity loan option.”

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Many of you know that we've been shopping for a new home, hoping to pick up a steal while the housing market is in the toilet. We've been looking for a few months now and as we head into winter, it looks like we won't be going anywhere this year.

But an interesting series of events last week almost made us take action. Here's what happened:

This past summer, we saw a house that we kind of liked (it was a great house, but I didn't really like the land that it was on -- too sloping). It was priced at $349,900 -- not a price that was out of our range, but we didn't like it that much at that price.

Our realtor has a website where we can flag properties and "watch" them. If something changes (like a sale or price drop), we get an email notifying us of the change. We liked this house enough to put it on our watch list.

Last Monday I received an email -- there had been a change on the house. The price was now $239,900! I knew that this was either a mistake or the sellers were in big trouble and needed to sell the home quickly. I didn't know if we'd want the house even at $239k, but it certainly made the place more attractive. I emailed our agent and asked for details.

She got back to me and told me what I suspected -- it was a mistake. The real price was now $339,900. Someone had typed a "2" instead of a "3".

Like I said, I'm not sure we would have gone for it even at that price, but it was exciting there for a day or so. I wonder what would have happened if we (or someone else) simply decided to make an offer on the place at $239k. Think the seller would have been surprised to know their realtor put in the wrong price by $100k? ;-)

Well I have a challenge for all of you experts: I will be spending $420,000/month until Dec 31, 2007 (after that $5000/month) on plastic goods for distribution (non-everyday spend). I can have any American Express personal card. (I don't have an SSN, and the only card that was willing to take me was Amex- trust me I've tried.) Which Amex personal card will offer me the best bang for the buck? My total spend until Dec. will be $840,000. I can use the blue cash and get 1.5%, or the SPG and get 840,000 Starwood points, or Delta etc? I don't mind whether it is cash or miles -- as long as the value is the highest.

I know that the Blue Cash from American Express card has been named the best credit card for high chargers, but this guy is over the top of what most people consider a high spender. Anyone have a suggestion for him?

October 18, 2007

This past weekend I received my Chase Freedom Cash Visa Card in the mail (I plan to use it as part of my strategy to make 2.6% cash back.) I called and activated the card right away and thought I'd share some of my thoughts on the experience as well as a few tips to make the most out of the card. Here goes:

1. Make sure your card is part of the Chase Freedom Dynamics Cash Rewards program. If it isn't, request for it to be. Mine already was part of the program, so I was set to go here.

2. The card gives you 3% cash back on the three of fifteen categories where you spend the most (to see the 15 categories, see Actions to Take If You Get a Chase Freedom Card). My most likely top three are going to be grocery stores, gas stations, and drug stores. But since I'm already in the 5% cash back category with these with my Blue Cash from American Express card, I plan on using the Amex card for them and using the Chase card in other areas until January (my Amex anniversary date) when the Amex card resets.

3. But here's the rub on #2. How your charges are allocated (whether they are assigned as a grocery transaction, a gas station transaction, etc.) is based on the category the store uses in processing its card transactions. Hence what you may think is a grocery store is not classified that way and hence you'll not receive 3% cash back on charges there. And Chase can't tell you in advance how a store is classified. So your only solution is to run test charges and then look at your statement to see how various stores come out. Then you can plan your charges accordingly.

4. Most notably, mass merchant stores are NOT included in the list of 15. Whether or not any particular Wal-mart (for instance) is classified as a mass merchant or a grocery store can only be determined by doing a test charge as noted above. But it appears that a Wal-mart (or Target or Kmart) that doesn't have a good bit of space devoted to groceries will have no chance of being in the 15 categories.

5. I talked to the Chase rep who activated my card (actually, the guy they assigned to try and sell me extra services once I had activated the card myself) about the issues noted above and he said I was "already way ahead of most people in my thought process on how to use the card." Little did he know how much I write on the issue. :-)

6. We made a charge on the first day we had the card just to make sure the first statement will have something on it (we have three months to settle out the other issues, so I'm not sure when we'll charge again on it.) I wanted to get at least one charge in so we'd be able to collect our bonus (there's currently a $50 sign-up bonus on the Chase Freedom Cash Visa Card) asap.

7. I also do my banking with Chase and while on their site the other day I noticed that a Subaru credit card I have with them also showed up when I logged on. Cool. It's nice to have everything in one spot. I asked the phone rep and he said I should see my new card show up soon as well.

The job hunter said we had nice benefits, which was good because he was going to have to take a lot of leave in the coming year.

The job hunter delivered his entire cover letter in the form of a rap song.

The job hunter brought his mother to the interview and let her do all the talking.

Can you imagine what the interviewer thought when the job hunter showed up with his mom? I would have paid a good amount of money to be a fly on the wall for that one!

Here are my favs of the resume blunders:

A job candidate attached a letter from her mother.

A job candidate used pale blue paper with teddy bears printed around the border.

A job candidate explained a three-month gap in employment by saying that he was getting over the death of his cat.

A job candidate specified that his availability to work Fridays, Saturdays, or Sundays is limited because the weekends are "drinking time."

A job candidate stated that he works well in the nude.

A job candidate explained an arrest record by stating, "We stole a pig, but it was a really small pig."

What is it with job hunters bringing their mom along or having mom write a letter?

Unbelievable. I don't have a lot to say about these other than use common sense when you develop your resume and go for interviews. Think what the person hearing what you say or reading what you wrote will feel about what you do, then act accordingly. Don't simply "be yourself" and expect them to love you. Let's face it, we're all a bit quirky in one way or another. That's ok, that's what makes life interesting. But we don't need to display our quirks to a complete stranger who has a business to run and holds our financial well-being in his hands. It's usually a recipe for disaster.

I just found out that my grandmother, my last surviving grandparent, was put in the hospital yesterday. The doctors aren't giving her long to live, so my family and I will be leaving tomorrow to drive back to Iowa. Posting will be light here over the next few days (I have some things in the cue that I'll spread over the next week or so.)

In church recently my pastor was saying that who you hang out with will determine who you become (and hence you shouldn't hang with the wrong crowd.) To illustrate this point, he told the story of a man who went to a seminar. The leader told him to make a list of his 10 closest friends and beside each one list what he thought they made in salary each year. Then he was to add them up and divide by 10 to get an average. The leader said, "This is your income." And he was right. the man was making exactly the average of his 10 closest friends. The point: who you hang out with is who you become.

But the finances of those around you affect more than just the perceived value of your property. They also, like it or not, help shape how much you spend and save and color your perceptions of your own financial well-being.

A few thoughts on these points:

1. Yep, the 10-person test noted above is a bit flawed since it's based on what people THINK others make. They don't know the correct numbers for sure, so maybe their estimates are off due to their perceptions.

2. It's certainly true that those around you do have at least some influence on your finances. You see what they buy, wear, drive, etc. and these influence what you do.

3. That said, it's not like they have total control over you. Just read The Millionaire Next Door. These people somehow live like the middle class but have accumulated much more. How? They've earned decent incomes and lived well below their means despite what their neighbors have done.

4. On our street, I'd say that appearances would put us at or slightly below the average. Why do I say this? Because there are two houses across the street that are about 50% bigger and much more expensive than our place. Almost all the rest are either slightly bigger or the same size. Only one I can think of is smaller. And yet, if you go by the average stats in our area, our net worth well exceeds what our neighbors own.

5. We see our neighbors drive their high-end SUVs, work on their antique cars (two neighbors do this), take expensive vacations, etc., but we're not really moved by these. We know what's important to us and spend accordingly. So they might influence us a bit, but in the grand scheme of things, we totally control our own destiny.

Here's a piece courtesy of ARA Content. It's obviously the combination of an article/sales pitch, but I thought this could be a worthwhile short-term business for some people out there to make a few extra bucks, so I'm running it.

The holidays are a wonderful time of year that brings much anticipation. But with all the fun also comes a pinched family budget. What if there was a way to earn extra holiday money while having a great time?

The Body Shop is a company that believes the holidays should be merry for everyone. Through The Body Shop At Home business, consultants hold home, office and other themed parties, which are a great way to boost your holiday earnings while spreading cheer. Consultants meet with a host and their group of friends, colleagues and neighbors to exchange makeup tips, help each other look great and to earn some extra cash for last-minute holiday gifts.

Here are some top trends for the 2007 holiday season that consultants can share:

Luxurious bath and body treats in the nutty, indulgent scent of Sweet Chestnut - introduced this season exclusively for The Body Shop At Home customers. From body butter to hand wash, these products conjure memories of past holidays where it might be cold outside, but inside it’s warm with the happy emotions of the season.

Gifts that give more for friends and family, from bath & body to home fragrance gifts like Totally Tropical Home Fragrance gift with Satsuma and Exotic Home Fragrance Oils.

Working as a consultant for The Body Shop At Home lets individuals balance hectic schedules between work and home and earn extra income during the holiday season and beyond. The position offers great potential and flexibility:

It’s a great opportunity to earn money and be your own boss, whether you want to build a long-term career or take on a second job or flexible part-time work.

Previous experience is not required. For $220, you get a start-up kit with more than $600 worth of products. Plus, you receive free training, where you can learn how to give facials, apply make-up and host themed parties.

“The Body Shop At Home gives consultants the freedom to be their own boss and have fun on the side,” says Jo Price, Director - The Body Shop At Home. “It is an entrepreneurial opportunity that gives consultants a way to help women feel great and, with 60 percent of the products sourced from The Body Shop Community Trade Program, it is an empowering way to give back.”

Through the Community Trade Program, many products from The Body Shop contain ingredients bought from small-scale farmers at a fair price, giving them a stable income and hope for the future. This means that every time you sell a product, you know you are supporting communities where people would otherwise struggle to make a living wage.

October 17, 2007

You missed just one advantage of index funds - they are tax friendly. Index funds have not only lower fees, but also save you from taxes (due to the fact that index funds hold the stock longer than the other types of mutual funds) and thus generate higher returns by allowing you to invest those saved money.

Actually, I didn't miss that point -- it was part of the post. It just wasn't broken out individually, it was noted as part of how index funds save on costs (and thus deliver a good return.) It's a good point though, and one worth being clear on.

Ok, here's a piece that really has me steamed. It's about what Forbes calls "middle-class millionaires" (they use the word "mMillionaire" to refer to them) and how they have to dramatically cut their standard of living if they retire with only a few million dollars. Yep, you read that right. The article is about how tough it is for these people with only a few million dollars when they retire. They have to do unheard of, horrible things like "live in three- and four-bedroom homes and drive mid-priced four-door sedans and mini-vans." Oh no! Not that!

Here's a quick summary of what this piece is about:

Just a generation ago, a person with $2 million or more in liquid assets would have had enough for a secure retirement. But not today. Combine longer life expectancies and the rising costs of health care, food, transportation and property, and you have financial challenges ahead for the mMillionaire.

The piece does have its facts straight. If someone is used to living off $400,000 a year, then $5,000,000 in retirement either isn't going to last long or they'll need to adjust their spending. But the point here is that these people have simply under-saved during their careers. Yeah, they made a bundle of money and saved a good chunk of it, but they didn't save enough. If they wanted to retire at the same level of income, they needed to spend less and save more while working.

And then the article simply goes overboard when it talks about how they'll now need to give up "mansions and yachts" and somehow try and get by with "three- and four-bedroom homes." Is anyone feeling sorry for these people? Not me.

If there's any value in this piece at all, it's in what's implied but not stated outright: funding retirement takes a load of money -- much more than what most people (even rich, smart people) estimate or imagine. That's why you need to calculate your retirement number now and take steps to start saving for it. Otherwise, you might have to cut your standard of living substantially in retirement as well.